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God’s Fingerprints On Adam Smith’s Invisible Hand

May 18, AD2016

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For those who know economics, Adam Smith is a beloved patriarch. Not only was the 18th-century Scottish thinker the father of modern economics, he was also moral philosopher. This intellectual combination was not unusual in his day, but it is rare in ours. His highly-influential work on the economic order is titled An Inquiry into the Nature and Causes of the Wealth of Nations and was originally published in 1776, just in time to influence our Founding Fathers. Although Smith wrote this work to expose the evils of the fading European mercantilist system, he also wrote it to show how important free market exchange was in establishing a sustainable, ethical, and productive economy.

If we listen, Smith’s famous metaphor of the “invisible hand” still has a great deal to tell us today.

A Look Back at the Dawn of Capitalism

In Smith’s day, the world’s developed economies were supported by inventories of precious metals, the most important of which were silver and gold. These commodities were highly controlled by the State. The leading economies of the time were focused on exporting while maintaining tight import controls and sanctioned monopolies. Smith’s work was extremely influential because it sought to show that economies should be based upon a real free market exchange. His simple argument was that in a free exchange, both side are ultimately better off by the exchange because, otherwise, no one would trade if he were to be worse off. For Smith, the buyer profits just as much as the seller. In Smith’s day, this meant that imports were just as valuable as exports, showing that trade (as well as agriculture and manufacturing) increases prosperity.

Smith’s ideas were rooted in new “economic” ways of understanding how human societies were designed to work. For Smith, communities thrived and functioned best organically as men established self-beneficial ways of living and working together. He sought to show that freedom and self-interest were in themselves productive and ordered.

Smith used the powerful metaphor of the “invisible hand” to explain how men are guided to work, through their own self-interest, and to barter with others so as to draw out the ends that were most valued. This was a radical new way of thinking about the social order.

Before Economics Was Divorced from the Other Social Sciences

For Smith, economies could grow naturally as a product of human nature. In many ways, Smith’s “economic” treatise was also a work of human psychology, morality, politics and natural theology.

Despite its lesser known status, Smith’s previous work on ethics first established his reputation. The Theory of Moral Sentiments was first published in 1759. This work examined the foundations of human morality. Smith reasoned that man’s natural “sympathy” for others enables him to understand how to restrain his behavior and maintain solidarity. Smith argues that it is this “sympathy” that is the foundation for moral actions and ideas.

Scholars have argued that a theological view exists in Smith and underpins both his moral and economic theories. Therefore, in looking at both of Smith’s works together, we can see the symmetry of both self-interest and ethics. Smith explains the connection in Chapter I of Part I of the Theory of Moral Sentiments, entitled Of the Propriety of Action:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

For Smith, self-interest is what drives the economy, and it is good and necessary. This is with the caveat that the economy is free from coercion and open to competition. Ultimately, Smith argues, the free market is the poor’s greatest hope, offering economic and social freedom in ways that no other economic system can offer.

It is important to note, as economic historian Jacob Viner explains, “contemporary social (and natural) science is secular, and many social scientists have viewed older works through secular lenses; the consequence is that many readers entirely overlook or discount the relevance of, Smith’s teleological view of human nature and the associated theology.”

Adam Smith, the Theologian

Paul Oslington, a professor in the School of Business and School of Theology at the Australian Catholic University, has written extensively about Adam Smith as a theologian and identifies four substantial theological influences on his work. Oslington suggests that Smith’s work resonates with remnants of (1) Calvinistic theology, (2) natural law ethics, (3) Newtonian natural theology, and (4) Stoic natural theology.

  1. Calvinistic Theology: Smith’s understanding of Calvinistic theology would likely have come from the conservative religious background of his Scottish mother and her influence in his formative years. Calvinism is a major branch of Protestantism sometimes referred to as simply the “Reformed” tradition. This tradition recognizes the sovereignty of God in all things. There are traditionally five main pillars that comprise this confession: (1) the total depravity of man, (2) unconditional election—predestination of salvation, (3) irresistible grace, (4) limited atonement for the elect, and (5) the perseverance of the elect.
  2. Natural Law Ethics: This framework offers an alternative to religion for explaining the motive for actions. This approach suggests a credible motive for action is a natural inclination toward conditions beneficial to the agent and to others.
  3. Newtonian Natural Theology: During the mid-17th century to nearly the end of the 19th century, natural theology provided the key ordering principles of natural history and gave social legitimacy to natural science. This was led in no small measure by the new science introduced by Newton’s Principia Mathematica. Like Newton, Smith also found himself confronted with the problem of explaining the original placement of the miraculously balanced elements of nature. Smith worked in a world where the studying of living things was motived by the quest for beneficent design. For Smith, nature was a divine economy. Natural theology was integral to Smith’s entire enterprise, based not on doctrine but based on faith.
  4. Stoic Natural Theology: Political scientist Lisa Hill reasons that “Smith was attracted to the ‘scientific religion’ of Stoicism because of its organic interpretation of the universe as a designed and integrated system.” In Smith’s day, Stoic views were revived and modified as part of the scientific revolution, and they also played a large role in the Scottish Enlightenment.

Together these theological influences helped to shape Smith’s view of the world and therefore his view of the economic order. Oslington agrees that “[t]he issues are complex and subtle, and there are good reasons why this type of [review]” is not the common way of reading Smith.

Today an interdisciplinary approach is the best way to understand the full dimension of Smith’s reasoning, primarily because to modern ears Smith speaks multiple languages.

The Invisible Hand – the Most Famous of All Economic Metaphors

One of the most famous metaphors used by Adam Smith is the “invisible hand.” It is used to describe the unintended social benefits resulting from individual actions. Smith first uses this metaphor in relation to income distribution in The Theory of Moral Sentiments:

[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. (184-185)

Then it was used with regard to production in the Wealth of Nations:

Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. (456)

The “invisible hand” is Smith’s metaphor for equilibrium, meaning the equilibrium which comes from providentially endowed laws of motion. In fact, some scholars believe that Smith’s economic theory is completely unintelligible if the “invisible hand” is divorced from its theological significance.

In an effort to try to clarify Smith’s use of the “invisible hand,” economic historian Peter Harrison conducted the first modern, systematic inquiry into the historical use of the term by contemporaries of Smith. He concludes that the term “invisible hand” was “relatively common by the time Smith came to use it… [and it] was used in a variety of contexts, by far the most commonly involved reference to God’s oversight of human history and to his control of the operations of nature.”

Lessons for Our Time

There once was a time when faith and economic matters were inextricably linked.   The divergence of the two came during the time of the Scientific Revolution when social scientists were reluctant to be satisfied with those theories associated with medieval theological views of God and man.

Adam Smith enters humanity at an interesting point. His observations of the economic order begin to focus attention on man’s motivations. Strangely, he is both a bridge to the traditions of the past and a harbinger of what becomes a more anti-humanistic view. Although the term “economic man” (homo economicus) was established almost a century after the time of Adam Smith, it is often traced back to the “self-interested man” of Smith. Economists think of man as a rational, self-interested agent who is innately designed to optimally pursue subjectively-defined ends.

Although modern capitalists read Smith with a secular view, his realism is better understood as a function of his sincere belief that world order is underwritten by the beneficent and guiding hand of God.

Economics seeks to describe the factors that determine production, distribution, and the consumption of goods and services. And as one of the forefathers of economics, Smith acknowledges that the goods are from God and it is through His providential care that man seeks to use these goods to his own maximization. Smith explains that “[t]he administration of the great system of the universe… the care of the universal happiness of all rational and sensible beings, is the business of God, and not of man.”

As the father of economics, Smith’s belief in the progress of man rests ultimately on a leap of faith: faith in the existence of a benevolent God as the designer of the universe on whose invisible hand we find God’s own fingerprints.

Photography: See our Photographers page.

About the Author:

Dawn Carpenter is a banker with the heart of a teacher and scholar. She is a veteran of Wall Street who studies what Christian theology has to tell us about the nature and value of work and the responsibilities of wealth. Using the experience of her nearly 25 year banking career, Ms. Carpenter serves as a Practitioner Fellow at Georgetown University's Kalmanovitz Initiative for Labor and the Working Poor. She is also a founding Advisory Board member to the School of Business and Economics at Catholic University of America, chairman of the Investment Committee and member of the Finance Committee of the US Conference of Catholic Bishops’ Black and Indian Mission, and as the Co-Chair of the Advisory Board of DC Habitat for Humanity. Ms. Carpenter is currently working toward a doctorate in Liberal Studies at Georgetown University where her groundbreaking research investigates the nature of work and the responsibilities of wealth. She has previously earned a M.A. in systematic theology from the Notre Dame Graduate School of Theology at Christendom College, a M.P.M. in public finance from the University of Maryland, and a M.A./B.A. in political science from American University. Ms. Carpenter and her family reside in Washington, DC.

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  • DLink

    Adam Smith regarded his posits on economics as completely secular. I fact he regarded the nobility and the church as prime distorters of attempts to alter the laws of economics. As a baptized Calvinist, though there is some doubt as to how loyal a one he was later in life, he recognized that man’s greed, envy and outright theft lay outside the laws of economics. There is a popular belief that his views supported one political party ,Tory, but that would be going to conclusion without examining the direction of his writings. Some of his beliefs were later supported by Benjamin Disraeli during the Victorian era to provide relief to the poor by abolishing the Corn Laws. One might partly judge the success of his work by noting that certain political figures refer to his theories in disparaging terms when appealing for support from the recipient classes. He also never regarded economic success as a form of rapacity but rather as acquisition that was further placed into the general economy and that had a positive effect on all the participants. All of which ran counter to various levelers of the time and still widely persists today.

  • In the quote, Adam Smith proposes that an invisible hand leads the rich through their rapacity to something good, a just distribution of material goods. Analogously, that invisible hand leads the sexual rapist through his lust to something very good, the conception and birth of new human being. In either case, should our response be, ‘Way to go, rapist!’?

  • OutsideTheGate

    Exactly.

  • james

    Funny how agape love doesn’t fit into the picture of homo economicus – God provides what humans are
    not capable of on their own. Great review.